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Managerial Economics and Financial Analysis
Common for all B.Tech Students
UNIT – I
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INTRODUCTION TO MANAGERIAL ECONOMICS
ction
INTRODUCTION TO MANAGERIAL ECONOMICS
The word economics is derived from a Greek term “OCIO NOMOS” which means house
management it explains how different individuals behave while managing their economics
activities. Economics teaches us how a person tries to satisfy his unlimited desires with the limited
resources at his disposal. In other word it teaches us how to use the available scares resources to
meet our unlimited desires. Hear the question of choice comes in the need for choice arises in the
context of “Scarcity”.
MANAGERAL ECONOMICS:
Economics is concerned with determining the means of achieving given objectives in the
most efficient manner. While managerial economics is the application of economic theory and
private institutions. It is an extraction from economic theory, particularly micro economics those
concepts and techniques which enable the decision Makers to efficiently allocate the resources of
the firm. If also enables the decision makers to understand the economic environment and the
effect of changes in this on resources allocation within the organization
Definition:
K . Arjun Goud
Assistant Professor
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Managerial Economics and Financial Analysis
Common for all B.Tech Students
Economics is deals with money or money oriented activities.
According to M N Nair’s and Meram “Managerial economics consist of the use of
economic modes of thought to analyses business situations”
According to Haynes “Managerial economics is economics applied in decision making”.
Nature of managerial economics
The following points specify the nature of managerial economics.

Managerial economics is confined only to a part of business
management: Managerial economics is confined only to a part of business
management but it is not directly concerned with the managerial problems
involving control, implementation, and other management strategies.

Managerial economics mainly relies on the sound framework of
traditional economics and decision science: Managerial economics mainly
relies on the sound framework of traditional economics and decision science in
analyzing the problems in a business. It mainly relies on the application of
economic principles and methodologies for business decision making.

Managerial economics is mainly microeconomics in nature: Micro
economics is that branch of economics which deals with the individual units or
sections of an economy. As managerial economics is mainly concerned with
analyzing and finding optimal solution to the problems of decision-making in a
business firm, it is essentially micro economic in nature.

Managerial economic is pragmatic: It is a practical subject. It
prevents the abstract issues of economic theory and incorporates complications
that are not covered by the economic theory in order to analyze the situation in
which manager take decisions

Managerial economic falls into normative economics: Economics
can be classified into two broad categories namely positive and normative.
Positive economics describes ‘what is’ i.e., observed economic phenomenon.
The statement “Poverty in India is very high” is an example of positive
economics. Normative economics describes ‘what ought to be’ or ‘what should
be’ differentiates the ideal from the actual. The statement “people who earns
more income should pay more income tax than people who earn low income” is
an example of normative economics.
K . Arjun Goud
Assistant Professor
www.specworld.in
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Managerial Economics and Financial Analysis
Common for all B.Tech Students

Managerial economics is goal oriented and problem solving in
nature: It uses the economics theory and decision science for solving business
oriented problems.

Managerial economics integrated theory into practice:
It
converts the theoretical framework of economics into real business practice.
Scope of managerial economics
The following business areas can be considered as the scope of managerial
economics:

Objective of a business firm or organization: Managerial economics
provide a sound frame work by facilitating a business firm to frame its
objectives both in the short-run and long-run.

Resource allocation: Managerial economics provide the methods of
effective resource allocation. It mainly aims at achieving high output through
low and proper allocation of resource.

Demand analysis and Demand forecasting: It suggests the
methodologies for analyzing the demand of a product. The demand forecasting
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Assistant Professor
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Managerial Economics and Financial Analysis
Common for all B.Tech Students
techniques it provides demand for a product which proven to be quite efficient
for meeting the competition.

Competitive
analysis:
The
managerial
economics
provides
competitive techniques for facilitating a firm to withstand or to face in a
competitive situation.

Strategic planning: Managerial economics guides a business manager
in making strategic decisions.

Production management: Managerial economics plays a vital role in
production management. Its effective tools helps to plan the business schedule,
regulate the production process and effectively place the output in the market

Cost analysis: Managerial economics provides various cost concepts
and cost curves that facilitates in determining cost-output relationship both in
short-run and long-run.

Pricing strategies: Managerial economics provides certain pricing
strategies that are used in analyzing the price of a product and in determining or
setting the price of a product.

Investment and capital budgeting decisions: The concept of
opportunity cost provided by managerial economics facilitates in making
appropriate investment decisions and choose the best alternative that fits the
organizational requirements.

Marketing strategies: Managerial economics provide marketing
strategies like
1) Product policy
2) Sales promotions
3) Segmentation, targeting and positioning.

Economics of sales: Managerial economics in the long-run helps a
firm to enjoy economies and diseconomies of scale.

Profit management: Managerial economics mainly concentrates on
the primary goal of a firm i.e., profit maximization. It deals with the activities
like profit estimation and profit planning

Input and Output analysis: The concept of production function
managerial economics depicts the input and output relationship.

Inventory control: Effective inventory control techniques of
managerial economics readily meet the organizational requirements
K . Arjun Goud
Assistant Professor
www.specworld.in
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